Bridging The Funding Gap

Back to the starting line on highway funding

The highway law that took so much effort over the past five years is just six months old, but now it's time to start again. As the U.S. Department of Transportation still unpacks the two-year, $105 billion measure passed last summer, Congress and transportation interests are gathering to return, once more, unto the breach.

The law, Moving Ahead for Progress in the 21st Century, expires Sept. 30, 2014. That gives Congress less than two years to draft and pass the next highway bill. Work will begin in this session of Congress. MAP-21 makes

important reforms at the DOT. It contains no earmarks, gives states more say over how they spend highway dollars, consolidates overlapping and duplicative DOT programs, and eases permitting restrictions that have slowed the process of getting approval for projects.

But it tapes over the core issue of funding, applying a temporary fix rather than providing a reliable, long-term revenue stream.

Funding falling short

The need for infrastructure investment is starkly clear. Study after study has found that highway maintenance and improvement are falling behind.

The National Surface Transportation Infrastructure Financing Commission, chartered by Congress to prepare an objective, in-depth analysis, found that the system needs about $200 billion a year.

MAP-21 provides a little more than $50 billion a year, with no sustainable path forward.

The Highway Trust Fund — the principal funding mechanism for national highway transportation — is in a woeful state.

The fund was $ 13.4 billion to the good in 2012, but the balance is on track to cross into red territory in 2015 and then plummet year-by-year until it's $109.6 billion in the red by 2022, according to Congressional Budget Office data.

That is what will happen if current spending levels continue, if fuel taxes or other revenue sources don't go up and if the fund does not receive any more transfers from general revenues.

This doesn't even take into account the decline in fuel tax revenues as vehicles become more efficient.

When federal fuel taxes were last increased, in 1993, the standard for new cars was an estimated 27.5 mpg, and for light trucks, 20.4 mpg. Both will have to meet a combined 34.1-mpg standard in 2016. The requirement could go as high as 54.5 mpg by 2025, said the Government Accountability Office in a recent report on the Highway Trust Fund.

The fuel efficiency gain is good news, but it also will reduce the intake of funds needed to maintain, improve and expand the national highway infrastructure.

Options to repair the fiscal pothole

The choices are apparent to everyone. CBO lists the obvious ones: spend less, take more money out of general revenues, or raise fuel taxes. There are other ways to raise highway-specific money, such as a vehicle-mile tax or fees on new energy extraction, but the fuel tax is by far the quickest, most direct and most efficient.

The problem is, it's politically impossible — at least it has been for the past 20 years. The resistance to raising the fuel tax is visceral rather than logical.

Business in general, and the trucking industry in particular, supports higher fuel taxes.

“I think it's about time we quit fooling around with it,” says Thomas Donohue, president and CEO of the U.S. Chamber of Commerce. “We don't need a lot. You do a little bit a year for a couple of years, and it will make a big difference.”

John Horsley, executive director of the American Association of State Highway and Transportation Officials, is proposing that instead of taxing fuel by the gallon, the government should impose a sales tax on fuel.

“The cost of the reform to taxpayers would be less than $ 1 per week, per vehicle,” Horsley says.

American Trucking Associations supports a higher tax on diesel, and some political leaders are saying much the same thing.

New York City Mayor Michael Bloomberg, former California Gov. Arnold Schwarzenegger and former Pennsylvania Gov. Ed Rendell head up an action group, Build for America, that is calling for substantial new investment in infrastructure.

Maybe the public's opposition arises from the daily close encounter with the fuel pump, says Janet Kavi-noky, executive director of transportation and infrastructure at the U.S. Chamber of Commerce.

“People are really focused on gasoline prices and the changes at the pump,” she says. “The general public has very little understanding of how much they pay, how they pay or where the money goes.”

The fight against hikes in fuel taxes

The public's sensitivity is grist for the politics of the day. From it Republicans in Congress derive their opposition to tax increases of any kind, and the Obama administration derives its opposition to a fuel tax hike in particular.

When the subject came up during debate over the last highway bill, DOT Secretary Ray LaHood said the administration could not support an increase during difficult economic times.

So far, this calculation has overmatched the observation that fuel taxes are reasonable, considering what the public gets for them.

The average car owner pays less than $ 100 a year in federal fuel taxes, according to the GAO. State taxes vary widely, from 8 to more than 37 cents per gallon, but the average cost comes to less than $116 per year.

That $216 per year buys the mobility provided by the greatest national highway system in the history of the world.

There are other fees and funding sources, but when it's all added up it amounts to less than most people pay for utilities such as heat, electricity or clean water, notes Doug Foy, CEO of the consulting firm Serrafix and Massachusetts Secretary of Commonwealth Development under former Gov. Mitt Romney.

Foy says he personally paid on the order of $160 in federal and state gas taxes last year, versus an average of $2,000 for the utilities.

“It's crazy. We need to get people to understand the scope of that network. People hate the fuel tax because they think it's gigantic.”

Darrin Roth, director of highway operations at ATA, agrees. “When you look at the real impact of a modest increase in fuel taxes for the individual motorist, it's very small,” he says. “The investments that would flow from the increase will be greater than the cost.”

The U.S. Chamber of Commerce has considered the idea of a national effort to educate the public about how roads are funded, but the expense would be prohibitive, Kavinoky says.

“This is going to be solved with leadership in Congress and the White House, and it's going to be solved by realizing that if you can fix the transportation problem you can also help address the debt and deficit problems.”

The deficit opportunity

We will find out soon enough if Congress and the White House can turn the debt and deficit crisis into an opportunity for transportation.